CRYPTO EXCHANGES

1. Context

2. What happened to Binance?

• Crypto exchange Binance handles tens of billions of dollars in trading volumes every day.
• Due to trading controls in the U.S. and strict oversight and registration procedures for crypto businesses, Binance did not allow U.S. customers to trade on Binance.com.
• But it offered the Binance.US trading platform to U.S.­based users. The regulator alleged that Binance let “high­value U.S. customers” access the international Binance.com platform. Binance.US is operated by Binance and BAM Trading Services Inc.
• The regulator alleged that BAM Trading and BAM Management US Holdings, Inc. misled investors about trading controls that did not exist on Binance. US.
• The regulator also stated that Binance and its CEO commingled and diverted customer funds while Mr. Zhao was controlling the operations of Binance.US in secret.
• The SEC has filed 13 charges against Binance entities and Mr. Zhao, alleging that they were “engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.

3. What happened to Coinbase?

• The regulator alleged that Coinbase evaded disclosure requirements that were put in place to safeguard investors.
• The lawsuit charged that the exchange traded at least 13 crypto tokens that should have been registered.
• Coinbase said in a statement that it will continue its regular operations. Coinbase went public in 2021 during the crypto boom and opened at $381 a share on its first trading day. On Tuesday, the company’s shares were down to $51.61 apiece.

4. How will this impact Binance?

• At the basic level, the regulator’s actions will spook U.S.­based crypto traders who use Binance’s services but wish to invest in crypto assets legally.
• The SEC’s message has made it clear that U.S. traders using both Binance.com and Binance.US are in danger of violating the law.
• The SEC also questioned the ability of Binance and its entities to keep its customers’ funds safe.
• “Defendants’ purposeful efforts to evade U.S. regulatory oversight while simultaneously providing securities­related services to U.S. customers put the safety of billions of dollars of U.S. investor capital at risk and Binance’s and Zhao’s mercy.

5. How Binance has responded?

• Binance issued a statement saying that it was disappointed with the SEC and that it had previously cooperated with the regulator's investigations.
• The crypto exchange also accused the SEC of trying to make headlines rather than protecting investors.
• Binance stressed its intention to defend itself “vigorously.” It pointed out that as the U.S. regulator, the SEC’s control over the trading platform was limited because Binance was not a U.S. company.

6. Effect on Crypto Market

• The cryptocurrency market is small and extremely susceptible to shocks and spooks when compared to more mainstream finance sectors.
• After SEC’s lawsuit against Binance, the price of Bitcoin (BTC), the largest cryptocurrency by market capitalization, fell as much as 3.90% to retail at under $26,000.
• The second largest coin, Ether, fell by 2.96% in the same interval to trade below $1,900. Experienced investors may have already taken into account Binance’s legal tangles.
• But new investors may panic and sell their tokens. Others may wait to see how the regulatory landscape changes for the volatile crypto industry.